Answer
App of Apps stores an explicit Application manifest per child in Git (static list you maintain). ApplicationSets generate Applications dynamically from generators (clusters, Git dirs, PRs), reducing boilerplate and auto-updating as inputs change. App of Apps is simpler for a fixed set; ApplicationSets scale better for many/variable targets.
Real-world example A fixed platform stack uses App of Apps, while deploying one app to N clusters uses an ApplicationSet cluster generator.